MTU Aero Meets Profit Expectations and Maintains 2022 Guidance

Wide-moat MTU Aero reported full-year 2021 EBIT and cash flow in line with expectations despite softer-than-expected revenue growth. Below guidance revenue growth of 5% to EUR 4.2 billion was affected by weaker-than-expected trading and currency headwinds. Strong EBIT and free cash flow growth were underpinned by a positive mix shift to higher-margin spare part sales and cost cutting. Group EBIT of EUR 468 million grew by 13%, with margins expanding by 80 basis point to 11.2% compared with the previous year. Free cash flow more than doubled to EUR 240 million, which aided the 14% reduction of net debt to EUR 673 million at year-end. Management maintained midpoint revenue guidance of EUR 5.3 billion and approximately 25% EBIT growth for 2022. We expect to slightly lower our EUR 212 fair value estimate once we update our forecasts as the high share of low-margin Geared Turbofan, or GTF, maintenance affects the maintenance segment’s margin.